Tesla's Model 3: Incredible Car, Pitiful Demand?

Tesla's Model 3 is not in good demand, statistics shows, as customers turn elsewhere knowing that it will be a long wait to get new vehicles.

Tuesday, Tesla stock was downgraded to Sell from Hold by Cascend Securities, citing signs that customer demand for Model 3 is beginning to slow amid production issues as they can't manufacture enough vehicles.

In November, only 345 units of Model 3 were sold in the US, compared with 2,987 units for GM's Chevrolet Bolt EV. Chevrolet Bolt, the first battery-electric car to go on sale with more than 200 miles of range for less than $40,000, also is said to be outsold each of Tesla Model S and X by a significant margin.

However, sales growth is still better sequentially for Model 3 compared to 145 units in the preceding month of October. The momentum is also gaining since its launch five months ago, when it sold only 30 units in July.

Customers are realizing that they can't get new vehicles until 2019, and are starting to look elsewhere, according to Cascend's Chief Investment Strategist Eric Ross. Model 3 is facing stiff competition in the ever growing electric-car field, with all the major car makers working on their own models.

Ross wrote in a note, "The company is burning through cash and will likely need to raise capital in the first half of 2018 (and perhaps even the first quarter 2018). And there won't be enough Model 3 production to suggest break-even is around the corner."

Tesla has announced and launched the Model 3, the semi truck and the Roadster, and another major product launch is not expected soon, Ross noted.

Tesla Chief Executive Elon Musk said earlier that he expected to achieve a production rate of 5,000 Model 3 vehicles a week by late in the first quarter. He also expressed zero concern about a production goal of 10,000 a week at some point in 2018.

Meanwhile, the Environmental Protection Agency stated that Tesla's Model 3 has a confirmed range of 310 miles, making the car one of the most efficient passenger electric vehicles in the market.

According to Tesla, a standard version of the Model 3, with just 220 miles of range, will be sold for $35,000, while the long-range version will start at $44,000. The production on the standard version is not expected to begin until 2018.

Tesla, battered by production issues, produced only 260 Model 3s in the last quarter. The production of about three cars a day was well behind a normal pace of about one car per minute. Recently, the company had adjusted its outlook for volume production on the Model 3 by about three months.